The Phoebus Cartel

Podcast Transcript

Companies that sell products to the public have to follow a fine line.

On the one hand, they need to sell stuff to make money, and the way they do that is by making a good product.

However, if their product is too good, then people might not need to buy it again, or at least not for a long time.

Almost 100 years ago, a consortium of industrialists tried to solve this problem by plotting to make their products worse just so people would buy more of them.

Learn more about the Phoebus Cartel and planned obsolescence on this episode of Everything Everywhere Daily.

The history of businesses working together against the public to make money goes back a long way.

In 1776, Adam Smith wrote in The Wealth of Nations, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

There is probably no better example in history of this than the collusion of light bulb manufacturers in the 1920s and 1930s.

In the early 1920s, the electric light bulb industry faced a peculiar problem that would seem counterintuitive to modern business thinking: their products were becoming too good. By the early 1920s, manufacturers had successfully created incandescent bulbs that could last 2,500 hours or more, with some experimental bulbs demonstrating lifespans exceeding 100,000 hours.

The famous Centennial light bulb in Livermore, California, which has burned almost continuously since 1901, stands as a testament to the durability that was achievable with early carbon-filament technology.

The bulb, which is still in service at the Livermore-Pleasanton Fire Department, has been operating almost nonstop for 125 years, totaling over a million hours of service.

Its longevity is attributed to its low wattage and to its exceptional construction.

While that particular bulb might be an outlier, it does reflect the general improvement in light bulb quality that was taking place in the early 20th century.

This remarkable longevity in bulbs created a significant economic challenge for manufacturers. The longer bulbs lasted, the fewer replacements consumers needed to buy, which led to declining sales and reduced profits for the industry.

The light bulb had become a victim of its own success, and major manufacturers recognized that their business model was unsustainable if products continued to improve in durability.

There was also something else.

Firms such as General Electric in the United States and AEG and Siemens in Germany built strong domestic positions through patent portfolios, while newer entrants such as Philips in the Netherlands and Tungsram in Hungary aggressively pushed into foreign markets.

Osram, from Germany, had already spearheaded an earlier European price and patent pool called the Internationale Glühlampen Preisvereinigung, founded in 1921 to coordinate prices and market shares in Europe.

When European manufacturers began to challenge General Electric in the United States, GE responded by organizing International General Electric in Paris to manage its overseas rights and cross-licensing.

The proliferation of overlapping light bulb patents, combined with dumping accusations and price wars, destabilized the industry. Negotiations among the major firms shifted toward a more formalized global cartel that would manage patents, markets, and technical standards.

On December 23, 1924, representatives from the world’s leading light bulb companies gathered in Geneva, Switzerland, to address this crisis. The meeting brought together Osram, Philips, the Compagnie des Lampes from France, Associated Electrical Industries from Britain, General Electric, and several other major manufacturers.

Together, these companies formed Phoebus S.A., a Swiss corporation that would serve as the administrative body for their cartel. The name “Phoebus” was chosen as a reference to Phoebus Apollo, the Greek god of light.

The primary objective of the Phoebus Cartel was to standardize the lifespan of incandescent light bulbs at precisely 1,000 hours, a dramatic reduction from the 2,500-hour bulbs that were common at the time.

This was not presented to the public as a reduction in quality but was instead framed internally as a matter of standardization and efficiency optimization.

The cartel established an intricate system of oversight and enforcement. Member companies were required to submit their bulbs for testing at independent laboratories. If a manufacturer’s bulbs consistently exceeded the 1,000-hour standard, they faced substantial fines.

The penalty structure was carefully designed to make compliance more profitable than producing longer-lasting products. Companies that produced bulbs averaging more than 1,005 hours were penalized, with fines calculated based on the excess lifetime and the number of non-compliant bulbs produced.

This enforcement mechanism was remarkably effective. Historical testing data shows that the average lifespan of incandescent bulbs dropped dramatically after the cartel’s formation.

By the late 1920s, the 1,000-hour standard had become the industry norm throughout much of the developed world. The cartel had successfully engineered a less durable product and convinced most of the global market to accept it.

Beyond controlling product lifespans, Phoebus also functioned as a traditional cartel in other respects. Member companies divided global markets among themselves, agreed not to compete in each other’s territories, shared patents and technical knowledge, and collectively suppressed innovations that might threaten the agreed-upon product standards.

The organization maintained extensive documentation of these arrangements, creating a paper trail that would later provide historians and legal scholars with remarkable insight into the cartel’s operations.

Here I should note that this wasn’t really a secret.

Phoebus S.A. was set up as a legal corporation, and its creation was announced in the official Swiss commercial register, which listed its name, purpose, and shareholders, just like any other corporation.

It sat in a gray area of “everyone in the industry knows, almost nobody in the public does.”

If you were a competitor, a lawyer, or a government official paying attention to industrial organization, Phoebus was not some mysterious cabal in the shadows; it was a known cartel in a sector where patent pools and market-sharing agreements were already common.

The core of the agreement, with its precise clauses on territorial division, production quotas, and especially light bulb lifespan, was not published to the public or made available to governments.

At its peak, the Phoebus Cartel controlled approximately 90% of the world’s light bulb production. This near-monopoly gave the organization extraordinary power over global lighting technology.

The cartel’s influence extended across Europe, North America, parts of Asia, and Latin America. In markets where cartel members faced independent competitors, they often employed aggressive tactics to force compliance or drive rivals out of business.

In the United States, General Electric played a particularly dominant role, both within Phoebus and in the broader American market. GE had already established significant control over the domestic light bulb industry through its aggressive patent litigation strategy and had absorbed or neutralized most independent American manufacturers by the time Phoebus formed.

The cartel arrangement allowed GE to coordinate its activities with international competitors while maintaining its dominance in the American market.

The cartel’s control extended beyond just manufacturing. Phoebus members influenced distribution networks, retail partnerships, and even electrical standards.

This comprehensive market control made it extremely difficult for independent manufacturers to challenge the 1,000-hour standard, even in countries where the cartel’s formal agreements had no legal standing.

The Phoebus Cartel’s operations began to face serious challenges in the 1930s as economic and political conditions deteriorated globally. The Great Depression reduced consumer spending and intensified scrutiny of business practices, while the rise of nationalist economic policies in various countries made international cartels increasingly problematic.

Some governments began investigating the cartel’s activities, particularly as public awareness of the 1,000-hour standard grew.

The final blow to Phoebus came with the outbreak of World War II in 1939. The war made international coordination between companies in hostile nations impossible, and the cartel’s operations effectively ceased.

Member companies in different countries found themselves on opposite sides of the conflict, and the practical mechanisms for enforcing the cartel’s agreements broke down completely.

However, by this time, the 1,000-hour standard had become so deeply embedded in manufacturing practices and consumer expectations that it persisted long after the formal cartel structure disappeared.

The engineering decisions, production techniques, and market conditions that Phoebus had established continued to shape the light bulb industry for decades. Even today, many incandescent bulbs are designed to last approximately 1,000 hours, a testament to the cartel’s lasting influence.

The Phoebus Cartel operated in a legal gray area throughout its existence. While some nations had antitrust laws that theoretically prohibited such arrangements, international cartels were difficult to prosecute, and enforcement was often weak or nonexistent.

The cartel’s Swiss headquarters provided a degree of legal protection, as Swiss law was relatively permissive toward international business arrangements.

After World War II, as governments and international organizations developed stronger antitrust frameworks, the Phoebus Cartel became a case study in anticompetitive behavior.

Documents seized from the cartel’s offices provided extensive evidence of price-fixing, market division, and deliberate product degradation. These documents have since been studied by economists, legal scholars, and historians as a prime example of how industrial cartels operate and the harm they can cause to consumers and innovation.

I should note that there is, in fact, a technical argument in favor of incandescent lightbulbs with shorter lifespans.

Supporters of shorter-lived incandescent bulbs argued that there is a natural tradeoff between lifespan and performance. A filament run at a lower temperature can last much longer, but it produces dimmer, yellower, and less efficient light.

By contrast, a hotter filament gives brighter, whiter illumination and higher efficiency, but it burns out sooner.

Engineers in the 1920s claimed that a standardized 1,000-hour life struck a practical balance: it delivered better light quality, reduced power consumption, enabled a more predictable system design for utilities, and avoided the inconsistent performance of very long-life but low-efficiency bulbs.

While there is a point to the argument, if that were the case, then the market would have adopted the more efficient, brighter bulbs that didn’t last as long, and the entire Phoebus Cartel wouldn’t have been necessary.

Obsolescence is something that is still an issue. However, rather than forming cartels, most companies solve the problem through product improvements.

The thing with a light bulb is that a light bulb is a light bulb. It is fundamentally a consumable item, with a much longer time span than most consumable items.

Smartphone manufacturers are finding that consumers aren’t upgrading their devices as often. Any new smartphone you buy today is pretty good and will last you a long time.

To get people to upgrade, smartphone manufacturers have to constantly release new features in the hope that it will entice people to buy new phones. Every year, this becomes more difficult as the phones are already feature-rich.

Likewise, automobiles last much longer than they used to. In the mid-20th century, it was common for a car to be “worn out” by around 100,000 miles, and many people treated that as the effective life of a vehicle.

Typical modern vehicles can often reach 200,000 miles or more with proper maintenance, and some brands and models routinely exceed that. This is primarily due to better rust protection, improved engine and transmission design, tighter manufacturing tolerances, more reliable electronics, and better lubricants and fluids.

Instead of planned obsolescence, automakers now charge much more for vehicles, and like smartphones, add more features.

You almost never see cartels like the Phoebus Cartel anymore because of the level of antitrust scrutiny governments around the world impose. Unless, of course, the governments are the cartel, as in the case of OPEC.

While the Phoebus Cartel was short-lived, it had a lasting legacy. It’s 1000 hours standard for incandescent bulbs to survive the cartel. Perhaps more than that, it gave researchers and governments a case study of what to look for in collusion and cartels.

Most of all, it made people buy a whole lot more light bulbs.